Middle East tension on the rise

Crude rallies on geopolitics

Oil prices bucked the trend of weakness in the commodity markets because of a series of rising risks. We have seen more problems with refineries and fear that the civil war in Syria might spread to Turkey. Oil also got a boost when it was reported that Israeli Prime Minister Benjamin Netanyahu called for early elections. While the main reason given by the Prime Minister for disbanding his right-wing government was because of a budget disagreement within his own party, the oil trade saw it more as Netanyahu solidifying his power and making this a possible referendum on war. With reports that Iran is only months away from having a nuclear weapon, Netanyahu wants to win an election handily to give him a mandate to do what he has to do to stop the Iranian threat.

According to Anshel Pfeffer writer of “The Axis” the specific timing of the next Israeli elections may have been determined by the circumstances of the 2013 state budget, but the main agenda of the election campaign will almost certainly be Iran. He says that the parties vying for our votes will be divided into two groups. The first will have an interest in the Iran emphasis and includes of course Likud and Netanyahu’s two rivals who are also former IDF chiefs of staff, Kadima lead by Shaul Mofaz and Ehud Barak’s Atzmaut. Each leader will try and convince voters that they are the safest pair of hands to defuse the Iranian bomb. Netanyahu will claim to have proven himself by putting the ticking nuclear clock firmly on the world’s agenda, where it supplanted the Palestinian issue which no-one hears about nowadays. Barak will slyly imply that only his presence in the cabin, sitting next to the driver, kept Israel out of mortal trouble for the last four years and if we don’t have him back in the Defense Ministry on the other end of the elections, we will regret it. And Mofaz, as he has done practically every day for the last three years, (aside from the seventy days he spent in coalition) will warn of the impending disaster caused by the Bibi-Barak duo’s strategic mishandling.

And then there’s the second group of parties, those not headed by a prime minister or an ex-general, whose line to voters will be: Iran is dangerous, but the real danger to Israel is the economic disparity/education crisis/non-participation of Haredim in workforce and army service/lack of Jewish values/treacherousness of Israeli Arabs/no progress in the peace process/not enough building in the settlements. Each party already has its single-issue platform set out. All they have to do now is convince the public that there are other things to worry about besides Iran. Their success, or lack of it, will decide the size of Likud and the relative degree of power Netanyahu (should he win) will wield within his next coalition.

There are also problems in Syria adding to the Mideast tensions. Reuter’s is reporting that Turkey's military will respond with greater force if shelling from Syria continues to hit its territory, its chief of staff said on Wednesday, as clashes between the Syrian army and rebels intensified along the border. Several mortar bombs landed outside the Syrian border town of Azmarin early on Wednesday and heavy machine gun fire could be heard from the Turkish side. Plumes of smoke rose into the sky and cries of "God is greatest" rang out between the bursts of gunfire, a Reuters witness said.

The oil market is taking this situation more seriously as it may disrupt supply from the world biggest up and coming producer, Iraq. The International Energy Agency says that Iraqi oil production could hit 6.1 million barrels a day by 2020 and 8.3 million barrels a day by 2035 from just over 3 million barrels a day now. That will make Iraq "by far the largest contributor to global supply growth" over the next 20 years, taking the place of Russia as the world's second-largest oil exporter.

European problems and China slowdown talk has been put to the back burner, at least temporarily. Still if we get a sense that Europe can’t make progress then that is the biggest threat to the rally.

About the Author

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

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